Despite weaker than expected job growth, unemployment dipped slightly this week, matching levels last seen in December of 2008. However the news is not all good as the dip appears to have come from many Americans giving up on looking for a job altogether. Meanwhile, the Department of Labor also revised the June and July job growth numbers lower by a total of 74,000 jobs.

Traders have reacted positively amid optimism that the weaker than expected job growth will lead the Federal Reserve to once again delay its decision to begin tapering its stimulus program…so much for all that talk about rising interest rates.

Stocks May Move To The Upside Following Jobs Report – U.S. Commentary – (Nasdaq.com)

Also in trading news this week, China re-launched trade of its treasury bond futures, 18 years after banning it following a multi-billion-yuan trading scandal. The trading was halted in 1995 because of an illegal trading scandal, which led to multi-billion-yuan losses and bankruptcy of the nation’s largest brokerage. – (Economic Times)

Finally, the PFG bankruptcy has taken on a new twist after a judge ruled Friday that Russell Wasendorf Sr. can face questions from his son and US Bank – (Wall St. Journal)

It’s full steam ahead for the CFTC, sending a CTA to prison for lying to customers. Yes you heard it right; the CFTC is holding someone accountable for wrongdoing in the industry. Upon reading the press release, we were shocked to gain knowledge that Josh Wallace of System Capital had misrepresented to clients the company’s wealth of prior experience in trading futures, accumulating $29 Million assets under management.

After an audit by the CFTC, they discovered there wasn’t much experience for Mr. Wallace to go by. CFTC went after Wallace to the full letter of the law, resulting with the quest to revoke registrations for Mr. Wallace and a 27 month prison sentence for committing criminal commodity fraud.

While it only took them almost two years to get their act together on the two biggest scandals in the managed futures history, we are left scratching our heads as to how and why they were able to successfully convict a CTA for inventing a history of prior experience, and yet unable to find and build a criminal case again Corzine. If you were to ask anyone in the industry, it would not be difficult to discover evidence of how Corzine violated a portion of the Commodity Exchange Act. Yet it took federal investigators two years to announcement there will be no criminal charges against him?

Congrats, CFTC! We’re glad you caught this guy, and you pursued him. These instances are true attempts at restoring confidence in the system, because what’s the point of rules and regulations, if nobody is held accountable? Now if only you could one up yourself, and reconsider criminal charges against Corzine…. We can only hope.

For those who had accounts at PFG – the overriding questions beyond what happened, what has changed, and all the politics and drama surrounding those items – is when am I going to get more of my money back, and how much of my money will I be getting back?

We provided our estimates of possible recovery amounts given varying circumstances either going for or against customers here (PFGBest Update: Recovery Scenarios/Percentages), and covered what exciting news the CFTC Suing US Bank was for the possibility of recovery is beyond that (the full missing amount of $200 million is only about 1% of US Bank’s annual revenue). But there remains a lot of confusion on what the time-frames are for all of this. To tackle that, we talked with the PFG Bankruptcy trustee Ira Bodenstein recently and have summarized the conversation below:

1. The main delay in processing further customer distributions at this point is the verification of all of the claims which have been submitted. There were over 3 times the number of claims expected with many people submitting multiple claim forms, and the trustee is now going through the process of verifying the amounts, objecting to duplicates, and objecting to claims which are invalid. His goal is to have the claim reconciliation done and a second distribution made before the end of the year.

2. The forex lawsuit (the trustee says the forex funds were not required to be segregated and thus should go to the benefit of futures customers, the forex customers have filed suit crying foul) should not hold up a second distribution, meaning a third distribution would likely be made upon the successful outcome – for futures customers – of the lawsuit. The lawsuit itself is progressing at a snail’s pace, with discovery to be completed by Sept. 30, 2013 and trial dates to be set around that time. We expect this suit to last through this time next year.

3. The trustee has met with the CFTC to discuss how their lawsuit against US Bank impacts the actions of the trustee, and following the CFTC suit requested and received an extension of the stay (delay) of the class action lawsuit through August of 2014. Interpretation – the class action lawsuit likely won’t go anywhere until the CFTC has finished their suit, and the CFTC suit is at the very least more than a full year away from any sort of resolution.

There’s no question that after the 1-2 punch of scandals involving PFG and MF Global, the managed futures community took it upon themselves to advocate for changes. Shortly after the MF Global incident, the Customer Commodity Coalition was formed to conceptualize the frustrations of the customers into visible results. Months later, the PFG scandal went down, only adding fuel to the fire of the CCC. It only seems fitting that on the 1 Year Anniversary of the PFG scandal, we sit down with friend and colleague, James Koutoulas of the CCC and chat.

Attain: James, thanks for spending the time with us today. First off, you are better known for the fight again Corzine and JP Morgan, but what have you and the CCC done for PFG victims?

James: “We’ve done all we can for PFG clients, but unfortunately PFG was a tougher case to be an advocate, because the money was stolen, not being held hostage by a bank. In the case of MF Global, we were able to get in there raise hell, and expedite things by a huge degree both in terms of the amounts released and the time of the release. In the case of PFG, we came in their aggressively and I think were able to expedite the first distribution by a couple of weeks. That helps a little, but the fact of the matter is you’ve got a $200 Million shortfall with no place to take it from, no bank holding it as collateral or margin. The money was just plain stolen, it’s not like we could claw it back from a bank like MF Global.”

Attain: Well there is a bank involved now, after the CFTC lawsuit against US Bank.

James: Absolutely. We think that the CFTC lawsuit against US bank could be a beneficial long term solution to customers getting back their money. Their complaint is pretty scathing, and I thought the CFTC did a great job laying out the story. However, this lawsuit could go on for years and clients will only have sight of the money after years of litigation. But customers have a real hope of getting a majority of this back if the CFTC is victorious.

Attain: What do you see as the CFTC’s odds of success?

James: The CFTC seems to have a pretty good track record, so good actually that I would rather see them lose more cases as that would mean they are taking more risk in pursuing wronging. But this case seems like a high likelihood of success to me, and knowing some of the people over at the CFTC, if they’re going to put in a complaint, it’s a pretty good indication they’ve got the evidence to back it up. Of course, I’m not privy to what evidence they do have, but U.S. Bank could be on the hook for the full $200 Million here.

Attain: We can’t help but notice that $200 Million is only about 1% of US Bank Corp’s annual revenues last year, so here’s hoping someone over there feels bad for what happened and just decides to take the minimal hit to the balance sheet.

James: Don’t hold your breath waiting for a banker to feel bad or part with their capital.

Attain: Moving one – what do you see as important changes for the better, since PFG happened?

James: PFG was a pretty big wake up call for the industry. The NFA has already required audit managers to get certified fraud examiner training. And while it is slow, you’re starting to see a cultural shift at the NFA to be preemptive instead of reactive when it comes to fraud. You’ve got the online confirmation of bank accounts which I think is a big step. You got NFA looking at ways to implement better controls at commodity pools, to make sure Commodity Pool Operators can’t pull the same scam. They are taking numerous steps to tighten the systems up. And what a lot of people forget is the system was very good to begin with. There was just one glaring unbelievable ball dropping which has set off these new initiatives.

Attain: What other measures are you working on to improve customer protections?

James: We’re (the CCC) working with congress to draft legislation to create a subordination provision in the Commodity Exchange Act, where all the creditors to FCM’s would have to subordinate their claims below segregated account holders. That would mean big banks like JP Morgan would have no right to offset against money due to customers. If we could get that passed, that would help speed any future bankruptcy distributions to customers because the bankruptcy trustee wouldn’t have to reserve assets against all the other creditor claims.

Attain: What’s the CCC still doing for futures customers in the meantime?

James: Now that we’re out of the crisis mode where we seemed to be in court every day, we’re trying to establish the CCC as a group that is here to stay, filling the void for customer advocacy for futures customers. The big players in the industry have their voice in the Futures Industry Association (FIA) and CME lobbyists, and more – but there really wasn’t a voice dedicated to the end customer until the CCC. We’ve created an advisory board and are laying out plans such as a membership model to support our continued efforts”

Attain: What about the NFA or FIA?

James: We like FIA , and we work with FIA a lot, but at the end of the end who’s really looking out for the customer? The NFA is there, but their different because goal is to combat fraud, and fight that aren’t compliant to the rules. However, the CCC is in place to actually go out and advocate for the customer, and to get laws passed. I think it’s good to have a group outside the regulator. It doesn’t take the CCC nine months of board meetings to make a proposal.

Attain: I know you won’t leave until we ask about Corzine – so let’s have it:

James: Simply, Corzine needs to go to jail. The laws we had two years ago were pretty damn good. You have a blanket provision of 10 years in prison and a felony charge for violating the commodity exchange act. That brings the issue back to enforcing the law. Gensler went before congress claiming there simply wasn’t enough money in the budget to fight rule breakers, and therefore they needed to shelve some enforcement actions. The next day, they pass over 400 pages of new rules. What’s the point of passing all these new rules, if you can’t enforce the existing ones? I’m in favor of having simple clear concise clear rules, where if you break them you have to enforce them. Otherwise, there’s no point in having them.

Attain: Do you think the public accountability of Corzine in jail would go a long way toward discouraging future frauds?

James: Absolutely, if people see the ex-Governor (Corzine) and friend of the president break the law and put him in jail, then I believe others are going to think twice about it. There’s a lot of money in this industry, and if big players with the money are left thinking – all I got to do to get out of jail is donate money to the President – then people won’t be afraid of breaking the law and injuring customers.

Attain: Finally, your compatriot John Roe would be upset if we didn’t ask about futures account Insurance. Where is the CCC on that initiative?

James: Mr. Roe put a very comprehensive plan together, and the FIA and NFA noticed and basically re-purposed it toward their study that’s been going on for what seems like forever. It’s not done, but should be around August of this year. But bottom line is we’ve been working on it a great deal, and the insurance companies and industry people we’ve been meeting with feel it could be put into place as an opt in plan, and be cost effective at the same time. So why not have it available to customers who want it There’s overwhelming support from customers to have this option available.

Attain: Thanks James, we’ll see you around town in those infamous white shoes.

Mr. Koutoulas and the CCC has emerged as a legit organization fighting for customers in the futures industry; working tirelessly (and essentially for free) to bring changes to the NFA, the Commodity Exchange Act, and the industry through initiatives such as futures account insurance. Here’s a link to the CCC membership page if you would like to become a member and help make impactful changes to the customer side of the futures industry.

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Forex trading, commodity trading, managed futures, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. You should not rely on any of the information as a substitute for the exercise of your own skill and judgment in making such a decision on the appropriateness of such investments.

The entries on this blog are intended to further subscribers understanding, education, and - at times - enjoyment of the world of alternative investments through managed futures, trading systems, and managed forex. Unless distinctly noted otherwise, the data and graphs included herein are intended to be mere examples and exhibits of the topic discussed, are for educational and illustrative purposes only, and do not represent trading in actual accounts. Opinions expressed are that of the author.

The mention of specific asset class performance (i.e. +3.2%, -4.6%) is based on the noted source index (i.e. Newedge CTA Index, S&P 500 Index, etc.), and investors should take care to understand that any index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship and self reporting biases, and instant history.

The performance data for various Commodity Trading Advisor ("CTA") and Commodity Pools are compiled from various sources, including Barclay Hedge, RCM's own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

The mention of general asset class performance (i.e. managed futures did well, stocks were down, bonds were up) is based on RCM’s direct experience in those asset classes, estimates of performance of dozens of CTAs followed by RCM, and averaging of various indices designed to track said asset classes.

The mention of market based performance (i.e. Corn was up 5% today) reflects all available information as of the time and date of the publication.

The owner of this blog, RCM Alternatives, may receive various forms of compensation from certain investment managers highlighted and/or mentioned within the blog, including but not limited to retaining: a portion of trade commissions, a portion of the fees charged to investors by the investment managers, a portion of the fees for operating a fund for the investment managers via affiliate Attain Portfolio Advisors, or via direct payment for marketing services.

Managed Futures Disclaimer:

Past Performance is Not Necessarily Indicative of Future Results. The regulations of the CFTC require that prospective clients of a managed futures program (CTA) receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the client’s commodity interest trading and that certain risk factors be highlighted. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA.

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Disclaimer

Forex trading, commodity trading, managed futures, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors.
The mention of market based performance (i.e. Corn was up 5% today) reflects all available information as of the time and date of the publication.